An Economists View

An Economists ViewReporting Labor Statistics Correctly

Gary Wolfram, Ph.D.
The George Munson Professor
of Political Economy, Hillsdale College

The coverage of labor market statistics by the media brings to mind
the old adage: There are lies, damn lies, and statistics. Any
reporter trying to justify his or her position may find some labor
market data to support it.

Now you would expect this from a sophist or politician,
but it would be beneficial to our political system if the media
clearly reported facts in context and clarified what statistics
actually meant. Most readers will be unaware of the subtle
differences among various labor market statistics and will be hard
pressed to determine their significance.

Journalists should have an awareness of what is behind
a given set of numbers and should explain to their readers or
listeners the strengths and weakness of a specific measure.

For example, suppose a reporter is trying to inform his
or her readers what has been happening to employment growth. It is
well known that the use of payroll surveys understates employment
growth. This is because the payroll numbers will not capture people
who are self-employed. If the reporter wishes to give the impression
that employment growth has been slow, then he or she could merely
quote the payroll survey numbers and state that employment growth
has been below trend, or didn't meet expectations, or that it didnt
grow fast enough to improve the economy.

What the reporter should do is explain what the data
actually shows: the number of people who are working for someone
else. Nothing more. For some stories this is the relevant number.
For others, the proper measure to report might be the number of new
unemployment claims, or the civilian unemployment rate. The point is
the reporter should tell the reader what the statistic is designed
to show.

We may use the current state of employment as our
model. Since April 2003, 1.9 million new payroll jobs have been
created in the U.S. economy. The number of new jobs using the
household survey, which includes the self-employed, has grown by 2.2
million. This differential between the payroll numbers and the
household survey will increase over time. With the advent of the
Internet, e-mail, simplified web site programming, etc., along with
reductions in the highest marginal tax rates, it is much easier to
be self-employed than it was 20 or even 10 years ago. This trend
will accelerate. Reporting payroll jobs as reflecting the overall
strength of the economy is simply misleading.

Reporters should also inform readers and listeners that
it is routine for labor market data to be revised. For example, the
Bureau of Labor Statistics reports data, does an annual preliminary
revision, and then a final revision. There can be a substantial
difference between the first release and the preliminary revision,
although the preliminary revisions and final revisions are usually
fairly close.

The citizens are not served when reporters provide data
and then attach their own value judgment as to the significance of
the data. For example, it has been reported that the unemployment
rate is unacceptably high for the current administration to remain
in office. Yet, when one compares the current unemployment rate of
5.4 percent to historical levels, it is quite low.

In fact, this rate is below the average unemployment
rate of the decade of the 1970s, 1980s and 1990s. It is also
substantially below the peak unemployment rate of this
administration, which was 6.3 percent in June of 2003. When put into
context, it is pretty clear that unemployment is closer to a
historic low than it is to a historic high.

The media should also include outside factors when
reporting employment and other economic data. A good example is the
effect of 9/11 on the labor market structure. The terrorist attack
not only directly destroyed several thousand jobs, but the
uncertainty it created slowed economic growth. In the 100 days
following 9/11, one million jobs were lost. When looking at the
performance of an administration in relation to job growth, surely
this is a relevant addendum.

Another fault the media should look out for is
reporting data in a manner that is designed to convey a false
impression. A prime example of this is the reporting that George
Bush would be the first President since Herbert Hoover to have fewer
people employed during the reelection campaign than at the beginning
of his term. Clearly this is designed to imply that the economic
situation under Bush is comparable to that of the Great Depression.
However, this is so ludicrous that few will take it seriously.

Putting into context any data on employment one would
have to acknowledge that the 9/11 attack was an outside variable,
Bush inherited the recession from his predecessor as well as a stock
market collapse, and due to uncertainties in supply, oil prices are
at historic highs. But leaving this all aside, as Ive already
noted, the economy has added millions of jobs and unemployment is at
a level below the average of the last three decades. President
Roosevelt, who won an unprecedented four terms and defeated
President Hoover, presided over an unemployment rate of 19% in 1938,
the 6th year into his term. No person who was not trying to use
complete sophistry would suggest that the employment situation of
2004 is somehow the worst it has been since President Hoover.

It is also useful to compare what has happened or is
happening to other countries. If the media reported this, we would
know that in the past year the U.S. economy has created more jobs
than Germany, Japan, Great Britain and France combined.

Finally, localized job losses will always be found in a
dynamic economy. Indeed, that is why market capitalism is such an
efficient way of organizing resources. New technology, increased
productivity, and response to changing consumer demand all lead
efficient firms to alter their use of labor. Thousands of workers
who were employed in the typewriter industry lost their jobs with
the advent of first, the word processor, and then personal
computers. But the only way to save these jobs is for us all to
continue using typewriters. It may be a nice human interest story to
look at the effects of the closing of a typewriter plant on the
local community, but it is hardly indicative of some failure of the
overall economy. In fact, it very well could be indicative of the
vibrancy and efficiency of the overall economy.

The media can inform the public or mislead it when
reporting on any economic data, but particularly on labor force
data. If they explain what the data is designed to show, put it into
true historic context, compare it to other countries, and account
for outside events, they will more than likely be informative.

Dr. Gary Wolfram is a member of the Board of Advisors for theBusiness & Media Institute.

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